Oct. 9 (Bloomberg) -- Bank of England Governor Mark Carney
marked his 100th day in office yesterday with his monetary
policy assured and a political battle looming over stability
risks from the government’s housing-market plans.

Since starting on July 1, he’s implemented forward guidance
on interest rates, loosened liquidity requirements for lenders
and put Jane Austen on a bank note, while the economy he
oversees has shown increasing signs of strengthening, sending
bond yields to a two-year high. Chancellor of the Exchequer
George Osborne persuaded him to leave the Bank of Canada to
become the first foreigner to run the 319-year-old central bank,
giving him a mandate for change.

With guidance keeping monetary policy on hold, Carney’s
next big challenge may center on the central bank’s Financial
Policy Committee. Deadlocked U.S. budget talks raise the specter
of a debt default, and even if that’s avoided, he must still
lead a review of the government’s Help to Buy program to boost
mortgage lending, making him the arbiter of an initiative that’s
been criticized for threatening to stoke a housing bubble.

“The emphasis is going to switch to the FPC,” Keith Wade,
chief economist at Schroders Plc in London, which has $388
billion of assets under management, said in an interview. “The
challenge for Carney will be if the housing market really takes
off, as this could bring him into conflict with the
government.”

Stronger Economy

Carney’s guidance is aimed at avoiding a sharp rise in
borrowing costs that could choke off the recovery. Under the
policy, the BOE plans to keep its key rate at a record-low 0.5
percent until unemployment drops to 7 percent, something the
central bank doesn’t see happening until the end of 2016.

Since Carney’s arrival, the pound has strengthened and
gilts fallen as the improving economic recovery stokes investor
expectations that the BOE will have to raise rates before then.

Sterling has advanced 5.5 percent over the past six months,
the most among 10 developed-nation currencies tracked by
Bloomberg Correlation-Weighted Indexes. The yield on the 10-year
gilt has risen 23 basis points to 2.67 percent since Carney took
over. The extra yield investors demand to hold the debt instead
of similar-maturity German bunds has widened to about 87 basis
points. It reached 100 basis points last month, the widest
spread since June 2010.

Policy Decision

The Monetary Policy Committee will probably leave its key
rate unchanged and keep its bond-purchase program on hold this
week, according to two Bloomberg News surveys of economists. The
decisions will be announced tomorrow. The MPC concludes its
monthly meeting today to allow Carney to attend International
Monetary Fund meetings in Washington.

After Carney’s first MPC meeting, the BOE issued a
statement saying an increase in market interest rates wasn’t
justified. A month later Carney, 48, revealed details of a
forward-guidance program that linked the benchmark rate to
unemployment.

“He’s been a breath of fresh air and has been able to
launch a new policy as well as look across all the bank’s
different instruments,” said John Gieve, former deputy governor
for financial stability at the BOE. “His main priority is to
make sure the recovery continues and this isn’t another short-lived blip, while continuing to build up the resilience of the
financial system. What will take prominence depends on events.”

Message Received

Carney has set aside investor skepticism on BOE forecasts
and says consumers and executives are getting the message. He
gave four television interviews after introducing the policy on
Aug. 7, and traveled outside London for his first major policy
speech, addressing business leaders in Nottingham on Aug. 28.

He may need to do more. After his September appearance
before Parliament’s Treasury Committee, Chairman Andrew Tyrie
still said guidance is a complicated topic to explain.

“The bank is facing some communication issues,” said
Petra Geraats, an economics professor at the University of
Cambridge who’s written about central bank transparency. “The
market reaction was probably not what the bank had intended.”

On a visit to eastern England, Carney said guidance is
intended to give certainty about monetary policy to ensure the
recovery. He also said the central bank has the tools to ensure
the housing market doesn’t enter a “boom and bust phase.”

Those comments followed a range of data showing a pickup in
house prices and a decision by the government to begin the
second phase of its Help to Buy program three months earlier
than planned.

Bubble Risk

The measure, which provides government guarantees to help
people buy homes with smaller deposits, has raised concern it
will stoke excessive demand and create a bubble. A house-price
index rose to the highest in more than a decade last month, the
Royal Institution of Chartered Surveyors said on Oct. 8, while a
Bank of England report published today found demand for
mortgages and their availability has increased significantly.

“It’s going to open up the market, we’re already seeing a
pickup in viewings and inquiries,” said Kirsty Keeton, manager
at Richard Watkinson & Partners real-estate agents in Newark in
the English midlands. “It’s going to be controlled. If the
market’s going too far, they don’t want to get their fingers
burned.”

To meet criticism of risks posed by Help to Buy, the
government has tasked the Financial Policy Committee with
reviewing the program annually starting next September.

‘Significant Threat’

The arrangement, along with a clause in the guidance
policy, heightens the importance of the FPC’s quarterly
decisions. While guidance includes two caveats related to the
central bank’s 2 percent inflation target, there is a third
linked to financial stability that enshrines the views of the
FPC in monetary-policy decisions. A finding by that panel, also
led by Carney, that monetary policy poses a “significant
threat” to stability may lead it to argue for tighter policy.

“The precise conditions for financial stability are
unfortunately very murky, though the idea behind it is right,”
said Cambridge’s Geraats. “The big issue for the bank’s
financial stability remit is the housing market, and for
monetary policy it’s definitely to communicate more effectively.
Carney’s got off to a decent start, but I think the bank can do
better.”